ab14 February 2024Global Research and Evidence LabGlobal StrategyKRW: Missed a window, or due for a catch-up?Korean Won: Due for a catch-upThere’s been no lack of good news for the won lately – robust semiconductor exports growth, improving manufacturing surveys, rising DRAM prices, Kospi earnings upgrades and more recently monstrous equity portfolio flows. These tailwinds lifted Kospi by c.10% in the past three months, which when coupled with the 40bps decline in 2y UST yields since early November should have sent USD/KRW comfortably below 1300. Yet, the pair is broadly unchanged. This underperformance of a well advertised narrative has puzzled many, let alone us. Equally so, we don’t find the poor price action as enough of an evidence to override the ongoing improvement in fundamentals.We note that Korea's weak Balance of Payments (BoP) have been a headwind for the won since early 2022, including in 2H23 when the tech cycle inflected. This is however changing with the recent trend in modified basic balance surging above 2016-20 average. Fading seasonal dollar demand in the coming weeks, vis-a-vis January, could potentially catalyze won's overdue catch-up. We see scope for a step shift lower in USD/KRW to 1280-1300 in next couple of months, while sticking with our relative preference for won on crosses - CNH/KRW over a medium term, and tactically in THB/KRW.We address key investor FAQs in 20 chartsWe address key questions pertaining to the won in 20 self-explanatory charts. Turn to Page 2 for an executive summary, and Page 3 onwards for relevant charts.What is the state of the memory cycle; and the outlook over coming months?If the recent memory cycle strength extends, how far could USDKRW go in 2024?Why has KRW underdelivered the tech sector optimism in past three months,……and what could revert this underperformance?Could won appreciate amidst ongoing signs of an extended US exceptionalism?This report has been prepared by UBS AG, Singapore Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 13. Global StrategyGlobalRohit AroraStrategist rohit-b.arora@ubs.com +65-6495 5232Teck Quan KohStrategist teck-quan.koh@ubs.com +65-6495 4416 Global Strategy 14 February 2024ab 2Executive SummaryKorean Won: Due for a catch-upThere’ve been plentiful of good news for the won lately – accelerating semiconductor exports growth, improving manufacturing surveys, rising DRAM spot prices, Kospi earnings' upgrades and more recently a rush of foreign buying in the equity markets. These narratives, alongside the ‘Value Up’ theme have sent the rolling three month equity portfolio flows to almost a record high. Likewise when coupled with Fed’s insurance cuts narrative, which sent Kospi c.10% higher and US 2y yields about c.40bps lower since early November,...
